Latest / Exit Algorithms / 6 Questions Your Leadership Team Must Answer Before Your Business Sale | Tara-Lee Goerlitz (#113)
Transcript
- Pete Vera, Exit Algorithms: Welcome to Exit Algorithms, the podcast where we decode what it really takes to unlock growth, streamline operations, and prepare your business for a high value exit. I'm your host, Pete Vera, and today I'm joined by Tara Lee Gorlitz, founder and CEO of Next Level. Tara Lee is an expert in leadership due diligence and MA transactions and uncovers the people risk that. Quietly kills value in the first hundred days after the sale of a business. Terra Lee, welcome to the podcast. Tara-Lee Goerlits: Hi, Pete. Great to be here. Pete Vera, Exit Algorithms: Yeah, great to have you. yeah, do you mind starting off, Tara? Can you introduce yourself to the to listeners here? I I love to hear a little bit about your your background and and business journey and yeah, and what you're focusing on these days. Tara-Lee Goerlits: Sounds great. so I mean, I've always been about people. I think my whole life. I was the best friend. growing up, people have always resonated with me. And I've always seemed in university, I was in a fraternity and I was, you know, the chapter relations chair. So I've just always really been about people and helping bring people together and and building connections and and trust. So it's no surprise that that has led directly into my career. I started officially working in leadership and team development back in about twenty ten. and over the years, you know, as my business evolved, really realized that The the greatest level leverage point is not so much around individual leaders, but really the health around kind of the health of the leadership teams or teams around leaders. I work with a team of two fabulous consultants, Duncan Reed and Ayako Otake. And they we have created an advisory, IRX advisory, and we We've worked together since COVID, actually. We spent COVID training directly through the table group and Patrick Lencioni using his organizational health framework. He's really known for the five dysfunctions of a team. That's something that a lot of people really resonate with. Some really solid, easy to understand frameworks around how organizations can be effective. And healthy. And these foundations really gives us some good language for what a healthy organization looks like, which we bring into all of our work, whether we're working directly with organizations in helping them create value for sale or working on the buy side and helping buyers look for great value in organizations. Pete Vera, Exit Algorithms: Yeah. that's awesome. I I'd love to hear, you know, having seen a so many transactions over the years, what are some of the commonalities in in MA transactions that go well? Tara-Lee Goerlits: Yeah, I think one of the lines that I use a lot is that, you know, execution and and value doesn't always it doesn't really come from poor strategy. Companies are really good at being what we call smart. So doing their annual strategies, their having their strategic plans, having their their strategic planning meetings, knowing what the plan is. But where we see things really fail is where the leadership team hasn't really come together to answer what we call the six critical questions. So just some critical areas around how they're actually gonna function together and how they're going to execute on that plan. So those six questions that we really look at are why do we really exist as an organization? How do we behave? And we're not talking about the values that you put on the wall. We're talking about how do we, you know, really tangible behaviors that we're looking for. From our leadership team as well as our entire organization, right? How do we behave in this organization every day? What do we truly do? How are we gonna succeed? One of the most critical questions, in my opinion, is: you know, what's most important right now? Are leadership teams actually coming together and deciding on what their most critical priority is? in over the next six months, over the next nine months, and then who does what? And we're not necessarily talking about what their job descriptions say, but when you're showing up as a leader on a leadership team, you know who is responsible for what initiatives, who's championing championing what components of those most critical priorities. When those answers live only in a founder's head, in a in a CEO's head where they often exist. Then the team is not coming together. They're not executing on a shared strategy. They're each executing their own interpretation of what they think they should be doing, of what they think the owner wants. And ultimately, you then you're gonna see the bottlenecks, the conflict, the turnover, the decisions Pete Vera, Exit Algorithms: Yeah. Tara-Lee Goerlits: that travel up when they're supposed to be kind of owned at an individual level. So it's not from a micromanagement perspective, it's not because owners are control freaks, it's not because they don't want to be able to step back. but they're the only ones that have those answers. And a lot of times they just don't create the space to have those conversations. So I think strategy fails kind of at clarity, not really at planning. You can have a brilliant plan and still have everyone executing their own version of it. And then when you look at that through the MA lens, this is even bigger. This becomes an even bigger issue because you have two organizations that have each Answer those questions independently. Sometimes you have very different businesses that are coming together, or they haven't taken the time to answer these questions at all, but there's a gap. we call this the leadership intelligence gap, and it's really something that's critical for organizations that are preparing for sale, making sure that they're really clear on these questions because that adds more value. And from a buy side, really making sure that they're taking the time to look at that. that data as critical due diligence insight that they need in order to make the best decisions that they can. Pete Vera, Exit Algorithms: Yeah. I I I love your your framework and and way of looking at things. yes, say you're a a business owner that wants to set their set their leadership team up so that, you know, that the the they can hand the business off smoothly, Tara-Lee Goerlits: Yeah. Pete Vera, Exit Algorithms: right? Who how do they apply those six questions? Say, you know, say they have a a few years runway before they they might be thinking about an exit. Tara-Lee Goerlits: Yeah, absolutely. so the first thing they need to understand is, you know, before they can build a team that's gonna run without them, they need to know what's keeping them dependent on them, right? And in my experience, it's almost never skill, right? We focus so much on leadership development and and upskilling, and those things are critical. There is definitely a lot of leaders that have not been given the training and development and support that they require. Through the lens of organizational health in our work, that stuff, this needs to come first, right? Before you start, you know, upskilling, you really need to make sure that that they're that they're aligned. So that you're looking around three kind of critical areas. So you see that there's not a lot of explicit decision authority. There's not a lot of clarity around who is supposed to make decisions and when and what that process looks like. like I mentioned, kind of that lack of clarity around those six areas. And then trust is such a big piece, right? So there's not enough trust to actually resolve conflict the way we need to resolve conflict. Skill, conflict is is not. To me, necessarily a skill, just because somebody learns about it and starts talking about it and starts expecting it, it's not just going to happen. You have to have that foundation of trust in order to have those difficult conversations, in order to make sure that though you're gonna be making the very best decisions at the right level. So Ultimately, most, you know, typical leadership development programs will really focus on improving individual leaders. We want to focus on what are the conditions that allow that leadership team to function as a unit. And they're really two different problems that have two unique different solutions. we've built this tool called leadership due diligence that we use to support buyers when they're buyer they're when they're acquiring a company. and one of the practical tests that we will put them through is, you know, can this leadership team make a contested decision together in a room without the owner present? So that, you know, if they can't do that, if they don't have the the vulnerability based trust, the psychological safety, the skills and the clarity to make those decisions, then they're happening outside the room. They're happening in silos, they're happening one-on-one, they're not happening as a team. And ultimately your business is not going to be transferable, regardless of how great your financials are, regardless of how great your operations are. so, you know, from a buyer perspective, they are going to uncover the reality of what's actually going on within your leadership team. 30 days post close. Right? They're they're Pete Vera, Exit Algorithms: Mm. Tara-Lee Goerlits: not gonna, they're gonna know what the or what the org chart says, what it says about where decisions should be made. But we all know that there's a difference between what the org chart says and maybe what's actually showing up, who actually holds that power, who actually has that influence in those decisions. And that's really what we wanna help highlight. So, as in somebody that's preparing for sale, the more clear you can be. about these critical issues, the more valuable you're going to, you're going to be. And those are different conversations that you can have in that pre-close conversation because in my experience, these conversations are not, they're not front and center, they're not happening. Pete Vera, Exit Algorithms: Yeah, right. that's that's great advice. Yeah, I'm I'm curious. You know, I I read a statistic recently. It's it's like over fifty percent of deals fall through during due diligence. I'm sure you've seen plenty of deals go south. I'm I'm curious in your perspective, are are there certain things that are common between those those deals that that just blow up for whatever reason during due diligence? Tara-Lee Goerlits: yeah, I mean it's like pre-close dil pre-close or once Pete Vera, Exit Algorithms: Yeah. Tara-Lee Goerlits: they're actually in it and things start to go sideways. We tend to focus a little more on the post-close side where we see Pete Vera, Exit Algorithms: Okay. Tara-Lee Goerlits: once once that deal is closed, you can have we you I mean we and anybody internally can have a much different conversation. Then you're having pre-close. So, as someone that business owner that's preparing for sale, the more you consider these, the this organizational health component, the more you're gonna be able to have those conversations pre-close. If you're not doing that work, then those conversations aren't happening. And then they're going to show up instantly post-close. Right. So you're gonna start to see that conflict avoidance. You're gonna see the trust issues. You're gonna see the conflict issues because pre-close, you're painting, you're painting a pretty picture of the way things are when everything is working well. Post close is a completely different environment. now you have you have an entire workforce that is unsure, uncertain about what's going on. There's this vacuum, unless you are filling that vacuum with the messages and the communication that you want them to have, they're going to fill that on their own. And then you start talking about culture. And then your culture becomes very reactive versus being intentional. Pete Vera, Exit Algorithms: Hm. Tara-Lee Goerlits: you have managers and leaders that now have their work for their work load has increased significantly. There's a timeline, there's deadlines, there's board expectations, there's a deal thesis that like there's a there's a plan and an expectation around this whole this whole transaction, and now that pressure has increased. So what Are you set up to actually function the way you sold yourself pre-close to the way you're actually going to be able to show up post-close? And it's really having that putting the time in as you're preparing to build that to build that organizational health. We kind of look at it as two separate sides of the business. We call we we refer to smart and health. And I think a lot of organizations really focus, all organizations focus on the smart components of their business. What's our product? What's our strategy? What's our marketing plan? What are our financials? All of that is is looked at and considered in deals. The health side, what we're talking about clarity, cohesion, morale, politics, turnover, that really is what unlocks your. strategy and unlocks your plan. So if you're taking the time to invest in that health and build that piece, it becomes it becomes a value multiplier in your in your diligence deals. So I think back to your original question about why 50% of those deals are failing. I think ultimately it comes down to health, but people don't name it that way. They don't call it that way. We're starting to hear Pete Vera, Exit Algorithms: Mm-hmm. Tara-Lee Goerlits: a lot more culture Being talked about a lot more in MA circles within around PE firms. But to me, culture is still a symptom of your organizational health, with which ultimately starts with the health of your leadership team. And so there are some simple, I mean, I say simple steps, but there is a very specific process that we support. Leadership teams in going through to make sure that they're just getting in a room and they're they're having those conversations and they're taking the time to answer these questions, write them down, find out where they disagree on these different questions. And it's not a matter of solving those disagreements, it's surfacing them. Because when you have a Pete Vera, Exit Algorithms: Mm. Tara-Lee Goerlits: leadership team of seven people and you have seven different answers to the question. What is most important to this organization and this leadership team over the next six months? That's a problem because now you have six completely different priorities. And then we talk about competing priorities. Well, of course, your managers and your and your employees are feeling stress and frustration around competing priorities because you have A leadership team that has seven different interpretations of what's actually most important. So come together, answer those questions, write Pete Vera, Exit Algorithms: And Tara-Lee Goerlits: them down, recognize those gaps. Those gaps are your bottlenecks. It's not your people, it's not having the wrong people, it's not even having the wrong culture. It's that your culture is just being reactive to whatever is actually happening instead of leadership teams being intentional about building that culture and maintaining it. Pete Vera, Exit Algorithms: Yeah. huge. Thank you. That's great great advice there. and al along those lines, you mentioned trust. I I'm curious your perspective. how do you how would you recommend a business owner convey to their employees about a about the impending sale? How have you seen that been done, been approached successfully and and you know and and turn over to a successful You know, new new buy new buyer. Tara-Lee Goerlits: Yeah, I mean, I've I've used the term vulnerability-based trust, and that's really what we feel is is foundational and critical to not just organizational success, but to a successful transaction. we talk about tr like there's a couple of different ways you can look at trust. Predictive trust is is what a lot of people think of when they think of trust. So I can I can predict the way somebody is going to act or behave, show up. communicate with me. but that's really not what we're looking at. We're looking for that next level down where you you have the ability as a leader to be real and authentic and show your shadow side, right? Be be willing to show that you don't have all the answers or that you do need help. And this, you know, like I said, this really starts within the leadership team, being able to build that And and it takes it takes a leader willing to lean into it. we're not talking about cheesy team building activities and and trust falls to do this, right? It's trust is built on a daily basis based on how you're showing up. And so when that when that when that level of trust is being built within within a leadership team, then it is going to naturally start to expand out. So that is how leaders are going to be showing up. That is how they're going to be showing up with their managers. Then they're that that's going to become part of your culture. you become ha you know you have a culture of vulnerability based trust and then from that that is going to what that's what's going to lead through your acquisition and so you know the more transparent you can be the more you know we're I'm big believers on you know communication is critical and not just communication for the sake of it but I think as leaders we make a lot of assumptions that people that people know what we're thinking and they know what we what we mean and we don't want to we don't want to sound like they don't know these things and so we don't say a lot of things that we need to be saying if that makes sense. So leading through the critical questions allows us to really through an entire transaction allows us to build the the trust and the communication and the confidence with our entire workforce that everyone is aligned around what's actually going on. But it really starts with it starts with day one and then it starts to become a part of your culture. You know, something as simple as, you know, during COVID when I talked to I talked about a to a colleague about this yesterday about he was on a he was on a meeting that was, you know, screens off. And and you know, I said, when you when you build a healthy organization with an entire workforce that is aligned around these critical areas. You don't have issues like not turning your screens on during a meeting as just a really simple example. Because people just do. Right. So it's it's it's building your organization from the inside out versus trying to build it from the outside in. You either have an organization that's built around trust, or you have one that's built around process. And when you have when you have a culture of trust, you don't need to have As much process in place because you have people that are that are intrinsically motivated. They're they're engaged and committed at a completely different level. And so I think that really, really shows up through the acquisition process. You have far less uncertainty. And if you do have uncertainty, you have people that are able to ask the questions. Because they all feel safe and they all feel like they're able to have those hard conversations so that they can get the answers that they need. And you don't have as much unfiltered uncertainty, which just runs into having, you know, their own narratives. And these are some of the things that we really, really look at when we support a buyer going in and looking at at the viability of a company they're looking to buy. Pete Vera, Exit Algorithms: Yeah. I I I love that concept. with that in mind, how far in advance really makes sense to to cue the employees in and and how like if in an org chart of you know 50 people, how many people really should be aware of a you know potential acquisition or some of those some of those details that the so owners sometimes are reluctant to share? Yeah. Tara-Lee Goerlits: Yeah. I mean I think every I think every situation is going to be a little bit different. There's so many different scenarios when it comes to how and why and what an acquisition looks is looking for. but I think that those answers become more clear when You've taken the time to build these foundations. So it's not that there's necessarily one answer to that question, but you're able to uncover the answers to those questions if you've done this clarity work. Because you're when a leadership team has done this clarity work, they are able to have the important conversations that they need to have and they're able to answer, They're they're able to make the critical decisions faster and better that they need to make. That's what a leadership team is there for, is to make decisions. You know, we talk a lot about meetings in our in our work. And you hear the word meeting and a lot of corporate people just cringe because meetings are all too often a waste of time. And they are because they're not done well and they're not done with intention and they're not done with purpose. and we have all kinds of strategies around that. But at the root of it, meetings are where a leadership team should shine, right? If you love sports, if you love football, you go to a football game to watch your favorite team perform. Leadership team meetings should be where leadership teams are performing. It is where they should be coming together to solve critical issues, to make critical decisions in that room together when you're leveraging the expertise, the knowledge, the passion of everybody that is on that leadership team. But in order to do that, you must have. You must have that clarity. You must have taken the time to build that trust and that team cohesion because that unlocks your ability to challenge each other. We don't shy away from conflict in our work. We lean into it. Leadership teams need to be able to have, we call it healthy conflict, healthy, productive conflict, in order to, you know, all in the with the goal of coming together to make the best decisions for the organization. So that, you know, the issue you just raised is a question. That a leadership team would need to answer. At what point do we need to be communicating? What does that communication look like? How much needs to be communicated? That needs to be happening in those meetings with this foundation. In so many organizations, leadership teams don't have the ability to do that. They shy away from they shy away from conflict. We have a conflict continuum. So leadership teams have have different cultures around this. Sometimes they avoid, they avoid conflict. They're conflict avoiders. and that creates certain issues. Sometimes you have mean spirited conflict where which creates all kinds of other issues. So you have all kinds of different issues around this, but ultimately it's trying to come together in the middle so you can come together and know that you are. doing your job as a leadership team, which is to make great decisions. Pete Vera, Exit Algorithms: I I think that's a great answer. Right. It de it depends. I I love I love your frameworks too. That's very helpful. Tara-Lee Goerlits: It depends. Thanks. Pete Vera, Exit Algorithms: yeah. So an another major theme of this this podcast, Ter Lee, is AI and how Tara-Lee Goerlits: Yeah. Pete Vera, Exit Algorithms: how people are implementing it. I'd love to hear from your perspective, your lens, leadership and team development. yeah, how is how is AI affecting your work and how are you using it personally day to day? Tara-Lee Goerlits: Yeah, great question. And definitely the topic of of everybody's conversations these days. internally within our own practice, you know, we we use AL AI a lot. I use it really as a thinking partner, as a strategic partner, as a drafting partner. We use a lot for, you know, data analysis, right? So when we do leadership due diligence interviews, we use it to really help Go through that data, help find patterns and similarities and and correlations that we might not see ourselves. but it's really not a core part of our methodology. I really feel like the value that we bring as a team. So there's three of us, I bring my my history and Specifically in team and leadership development. Duncan brings a long career working within the corporate world, working through and on a lot of mergers and acquisitions throughout his career and supporting leadership teams through those experiences. And then Ayako actually comes from a history of or background of change management operationally and really recognized so many so many gaps in that process because the people side wasn't considered. So that's how she kind of ended up. So when we come together as a team and and support a client through this work, we're bringing our extensive years of experience. When we have a we can have a one-hour conversation with an executive and come up with nuances and perspectives through that conversation that AI would never pick up. So yes, there is a place for AI to support this process and gather data, but we really feel that the conversations and experiences that we create, whether it's through our us doing interviews or even through us supporting a leadership team through building their own clarity, that's work that they have to do together. That's through their conversations and through their experiences. And that's really where that value is created. You can't just, you can't just leverage AI to do this, to build the trust for you, unfortunately. However, I do feel that in what I've seen You know, we really saw this during COVID. The companies that had built strong health in their organizations were far more capable to navigate the challenges of going to a remote workplace than those that hadn't. And I find AI is doing the same thing. So when organizational health exists, AI really amplifies value. and then when it doesn't, it really just helps create more confusion faster. So it doesn't really fix the clarity problem. if your team doesn't know who decides what, then AI gives them, you know, more faster access to more confusing information. But if you have clear roles, if you have clear you know, clear decisions around who where your decision authority is. If you have strong communication within your organization, you're going to be able to really leverage AI to move faster. And so that's one of, you know, that's another outcome, I think, of being able to, of being able to leverage, you know, being able to taking the time to truly invest in your health. No AI tool is going to tell you whether, you know, looking at it through a buyer perspective, I don't think there's any AI tool that's going to tell you whether or not an acquired leadership team is able to hold that contested, make that dis contested decision together, as I referred to earlier. That still requires a human assessor and a structured process around it, but AI definitely has a place where it can help support us in being more effective at what we do. Pete Vera, Exit Algorithms: Yeah. great. awesome takeaways here. A lot a lot of good insights, Turley. I Tara-Lee Goerlits: Thanks. Pete Vera, Exit Algorithms: just have one one final question for you. It's and you've covered this quite a bit already, but if you had to leave listeners with just one practical takeaway, thing a something a business owner could implement to have a more successful high value exit, what would it be? Tara-Lee Goerlits: Yeah. book an off-site with your team. It doesn't have to be, it doesn't have to be big, it doesn't have to be long, but just create some space to bring your leadership together, leadership team together, and and answer the six questions that your organization needs in order to function without you. So have the conversations, find out where your leadership teams, where your team members Where their answers are independently to each of those questions. And find out where there's gaps, because I guarantee you you do not all have the same answers to all of those questions. So find out what those gaps are, find out where those bottlenecks are, and just hash through it a little bit, write down a shared answer, and then start living through those answers. So You know, take the time and as you go through that process, when I talk about building vulnerability-based trust, taking that half a day or taking that day in that room to do that process is a critical, like that is the most important thing, the most, the easiest thing you can do to start to build that foundation of trust. Right. The more real you are about hashing through those answers, that process alone will start to make that process easier. You have to start to practice. When we do this work with leadership teams, we take them through a process for we help come up with some norms. We talk about conflict norms, right? So it's one thing to say this is, you know, this is how we want to deal with conflict, but then let's build some rules around it. Let's build some guardrails so that we can all start to have a clarity around what this looks like because next time you're in a meeting, that's your job is to start to practice. And it's going to be uncomfortable. Right. It's going to be uncomfortable to start to behave differently because it's not, we're we're we all too often operate within our within our comfort zones. So, you know, we do a little part, a big part of this, I guess, is is starting to behave differently and starting to be more vulnerable. But just start small, come up with those answers and then start to live them. Start to talk to your managers about them. Right. So then that's the next step. Once you come up with those answers, then you have to share those answers. Right. So then you talk with your managers about them. Your managers talk to their teams about them. Right. And this starts to become this shared clarity throughout the organization. and when it comes to practicing it over time. It's kind of thing where if you ask a client, if you ask a vendor, if you ask somebody that has engaged with your organization and you were to ask them, you know, how does this company behave? What is their culture? That they would have clarity around what those things are because they have a very specific experience with your company every time they interact with you. Absolutely, that is what you are going to sh show and shine to a potential buyer. It becomes a huge critical piece of your value that is a competitive advantage because organizational health we believe is one of the last truly sustainable competitive advantages. When you build that internally from your organization, it becomes very hard to duplicate. It becomes yours and it became becomes the It it becomes what unlocks your ability for your organization to achieve its strategy, whatever that happens to be. Pete Vera, Exit Algorithms: Yeah, I love it. And and what are those six questions again? Tara-Lee Goerlits: It is who why do we exist? How do we behave? What do we do? How will we succeed? What's most important right now? And who on this leadership team does what? Pete Vera, Exit Algorithms: Awesome. Okay. Great. That then listeners Tara-Lee Goerlits: Yeah. Pete Vera, Exit Algorithms: can hear it twice. Hopefully it'll it'll ingrain a little a little better there. But Tara-Lee Goerlits: Absolutely. And I mean this is this is framed around, like I said, the table group Patrick Lancioni framework. So He has written tons of books. There's lots of resources available out there where leaders can learn about this and try to run this internally. And like I said, there's there's us, there's lots of practitioners out there. There's huge value for leadership team in having an outside support through this process to really help the leader themselves become a part of the conversation instead of feeling like they need to lead the conversation. But there's lots of resources available out there around this work. Pete Vera, Exit Algorithms: Yeah. And where can listeners find find you and and your if they wanna reach out and and learn more? Tara-Lee Goerlits: Yeah, I think LinkedIn is the easiest way to find me right now. So Terry Lee Gurlitz and pretty easy to find on there. So send me a connection request. send me a message. I also have a website for next level. But like I said, we're doing this work through IRX advisory with with Iako and Duncan. And we're just we're just having a conversation the other day about how we make ourselves more official online. So we haven't done that yet, but you can find me on LinkedIn. That's the easiest way. Pete Vera, Exit Algorithms: Good, I'll leave that in the show notes. Thank you so much for coming on today, Chair Lee. It was really fun conversation. Tara-Lee Goerlits: Perfect. Yeah, thanks for the conversation, Pete. Absolutely. Take care.